Wintertime For Ukraine And ... The Dollar

Let’s start out with Will Schryver, defending his past prognostications and sketching out a thumbnail view of what’s coming in Ukraine from a military standpoint. At the end of September Schryver basically saw the war in Ukraine as finished for Ukraine. It has only continued thanks to massive infusions of NATO materiel—and men. Ukraine’s losses have been horrendous, but once the expected Russian winter offensive begins those losses may fall upon the NATO contingents as well. If that happens then NATO’s and the US’s resolve will be sorely tested. I take it that the top levels of Western regimes have been presented with this likelihood by their militaries, and that that realization is what’s behind the attempts of the West to bluster Russia into negotiations. My guess is that the collective West, in the face of this sobering dilemma, knows that their publics have no stomach for this type of war.

Schryver:

Short🧵

The original NATO-trained AFU [Armed Forces Ukraine] was ruined by July.

In late August there appeared a smaller army based on NATO training, equipment, and the cream of the AFU mobilization crop -- plus several thousand "foreign volunteers" -- including at least hundreds of Americans.

It has now emerged the Poles have already lost [“suffered” would probably have been a better word choice] ~5000 casualties on Ukrainian battlefields.

The current Polish government will almost certainly not survive this debacle.

There are at least hundreds more from other countries, including the US.

Many mocked my blog post of September 30th – entitled Turning Point.

Few saw in the battle for Liman a turning point that favored the Russian military position.

And yet here we are: Ukraine is at its weakest ever; Russia at its strongest.

Turning Point: A different kind of war is about to begin.

The war in Ukraine has now reached the point where the empire will struggle to find additional willing proxies to feed into the Ukraine meat grinder.

Do the imperial masters choose to cut their losses and stand mutely as Russia dictates the terms of peace?

Or does the #EmpireAtAllCosts cult bear sway and attempt to reclaim the situation by more desperate measures?

2023 is likely to be viewed, decades hence, as a hinge-year in history.

Prepare accordingly.

Now, Alasdair MacLeod can be said to have taken this as the starting point for a wide ranging analysis of the total war—and especially the financial war over dollar, and thus American, hegemony.

Winter In Central Europe... And For The Dollar

Authored by Alasdair MacLeod via Goldmoney

While I highly recommend the article, I take issue with MacLeod’s premises—which, however, are not essential to his analysis.

MacLeod paints the conflict as a struggle between the US and Russia/China for world hegemony, with the key battle focused on the status of King Dollar as the world’s reserve currency. I disagree with the idea that Russia/China are aiming for a sort of joint hegemony over the rest of the world. I see this war, in both its military and financial aspects, as essentially defensive in nature—Russia and China are struggling to avoid subjugation to and colonization by the US. I don’t see any other interpretation when the history from the end of the Cold War to the present is viewed in full context. The collective West has been a relentless aggressor around the world, but with a particular focus on Russia and China. Nevertheless, I doubt that Russia wishes to be closely tied to China for the long term.

With that caveat, MacLeod is very clear on how the war is progressing. The Russian plan to set up a “replacement trade settlement currency”, if it succeeds, will be a disaster for the US dollar hegemony. It would likely “unleash a flood of foreign-owned dollars onto the foreign exchanges,” resulting in a massive devaluation of the dollar. That would strike at the very basis for US global hegemony, and prospects for such a restructuring of global trade settlements look promising. The US establishment understands this, and is looking for some way out of this dilemma:

… there has been an underlying shift away from a long-term everything financial bubble, with the prospect of higher interest rate levels in time. The reasons for foreign ownership of fiat dollars are diminishing, and a successful new Asian trade currency will only add to the dollar’s woes.

Could this pressure compel America de-escalate Ukraine and sanctions against Russia? The argument to do so has become compelling. It is also a way to lower energy prices, giving central banks needed room for interest rate manoeuvre.

Now, think back to a little over a year ago—December, 2021. That’s when Putin presented his draft treaties to the collective West. Those draft treaties, in essence, proposed—no, demanded is more like it—the disbanding of NATO in its post Cold War shape, rolling NATO back to its pre-1997 state. That means reestablishing a buffer zone between Russia and the West, including not only Ukraine but also countries like Poland and Romania—now NATO members—as part of that buffer zone.

That would obviously constitute a stunning defeat in full global view for the US. Obviously the US is desperate to avoid that consequence. However, things have gone so far—as Schryver writes—that Russia is in control of the situation and may be in a position to dictate terms. This explains the fact that the US, while talking a tough line, appears to have actually entered into low key negotiations—although the word “negotiation” was carefully avoided:

Doubtless, this is what led William Burns, the CIA’s director to meet his opposite Russian intelligence chief in Ankara two weeks ago. The official story was that Burns was there to warn the Russians not to resort to nuclear weapons and to raise the issue of US prisoners. But there is little doubt that this back-channel meeting was to explore compromises before America finds itself a party to the cruel sacrifice of the Ukrainian population in a proxy war.

MacLeod is very kind to the US ruling class. In reality the US ruling class doesn’t care about any cruel sacrifices on the part of the Ukrainian population. They do care about their own power and status, and that’s what they’re seeking to preserve through some sort of compromise. It won’t be easy:

In the great game of geopolitical strategy, bringing the Americans to the negotiating table can be chalked up as a win for the Russians. But it is not just about a proxy war on Ukrainian soil. Both Russia and America have overriding objectives. The Russians want to secure their western borders, which means American military withdrawal from all border nations at the least — Lavrov has mentioned 300 miles being the missile range. The US will undoubtedly resist these demands, because to give up effectively on its post-war role as the protector of Europe through NATO would be an open admission of defeat on the world stage. It would mean the end of US global hegemony, which the Americans are desperately clinging on to. Furthermore, it is a defeat that would enhance Russia’s power not just in the Western European arena, but through its partnership with China over the entire Eurasian continent.

From the US’s point of view, negotiations with Russia will probably turn out to be an exercise in damage limitation — like the withdrawal from Afghanistan. [America] needs to get to the table before the situation deteriorates much further.

MacLeod then goes on to discuss what everyone is talking about—the rising discontent with the American relationship in Europe. Europeans are blaming their problems on the sanctions war, although they were initially enthusiastic over the prospect of bringing Russia to its knees. That didn’t happen, because in typical Neocon fashion America’s rulers failed to think this thing through. It all sounded good in Neocon echo chambers, but now America is faced with a two front war that it was simply unprepared for—unprepared militarily and unprepared economically:

Before escalating the Ukraine situation, we can be certain [Putin] anticipated both American-led sanctions and calculated his response. That the Americans have tentatively signalled that they are now prepared to negotiate confirms the success of Putin’s Ukraine strategy. Now, with the onset of winter he can afford to wait. And the longer he waits, the greater the squeeze on Ukraine and the EU.

America is fighting this power game on two fronts: Russia and China. She cannot be too aggressive against China because the US is still mightily dependent on its economy. The US is resorting to selective technology bans and not much else. Having exported manufacturing supply chains to China and Southeast Asia, large US corporations cannot afford to see their supply chains undermined by aggressive foreign policies. Already, intentionally or not China is putting the squeeze on US corporates with its covid lockdown policy.

This doesn’t mean that China and Russia are totally in the drivers seat. Each country has limitations and problems, which is exactly why Putin and his foreign minister, Sergei Lavrov, have assiduously courted key countries throughout Eurasia. Even combined, Russia and China are not in a position to be a cooperative global hegemon. But the emerging Eurasian trade and economic partnerships will allow these countries to free themselves from pressure by the collective West.

So far, a confirmation of the end of US hegemony has been seen in the change of Saudi Arabia’s trade policy, whereby it has realigned itself to Russia and China, confirming its intention to join the BRICS organisation. With other Arab states following the Saudi lead, this confirms that the Gulf states see their future being bound up with the Russian and Chinese partnership. This is likely to be followed by nations in South-East Asia, which at the moment are sitting on the fence. But Indonesia’s recent hosting of the G20 meeting showed that the hosts appeared to be more worried about upsetting the Russians and Chinese than the US-led western alliance.

Member states of the European Union are beginning to face the same dilemma. They have gone along blindly with NATO policies without questioning them. The failure of NATO’s wars in the Middle East and Afghanistan, and the consequences of the overthrow of Libya’s Ghaddafi have all led to Europe’s refugee problems. Now, the economic sacrifice of NATO alignment is plain to see. EU leaders are muttering darkly about how the Americans are profiting from Ukraine while Europe is paying the price.

I won’t attempt to summarize MacLeod’s analysis of the likely shape of the new currency regime, which he sees as based on gold and other valuable commodities and manufactured goods. However, I will quote his references to the forces that could end up driving the end of the Ukraine war:

… foreign ownership of financial assets including bank deposits totals nearly $30 trillion, down over $4 trillion since last December. Some of this is due to fluctuations in portfolio valuations, but clearly the foreign appetite for holding dollars is waning. If the Russia/China Asian bloc comes up with a viable trade settlement currency, both official ownership and private sector ownership of dollars will be less required, and ownership by foreigners will diminish further.

Dollars will be sold for other currencies, to purchase bullion, or to build stocks of durable commodities. The global desire to sell dollars for other major fiat currencies was knocked on the head by currency sanctions against Russia. And we can be sure that the message about holding yen, euros, or sterling is widely received in all Asian nations.

Therefore, US-led currency sanctions against Russia will probably backfire badly. With the dollar being sold for bullion and commodities, the value of dollars relative to bullion and commodities will obviously decline. It will be a trend readily understood by foreign holders, likely to drive the dollar down more rapidly than might be expected.

…

… after fifty-one years of the dollar being totally fiat, and the dollar seeing demand on the basis that it is the only reserve currency, the ending of that period [of dollar hegemony] at a time when the US economy is entering a recession is the worst combination of events possible.

This is probably the most compelling reason for the US Government to seek to de-escalate tensions over Ukraine and dismantle sanctions against Russia. It would or should have been on the CIA’s William Burns’s mind when he met his opposite Russian number in Ankara a fortnight ago.

Overall, and prescinding from all the detailed analysis in the article, I find MacLeod’s argument persuasive. As Schryver writes, 2023 could be a “hinge year” in world history. Buckle up.